The mandatory implementation of Making Tax Digital (MTD) for VAT is only less than a year away. From 1 April 2022, all VAT-registered businesses, no matter how much they earn, must comply with this new way of doing taxes.
If you still haven’t registered your business, this quick guide will show you the requirements you must prepare, the MTD-compatible software you can use, and the actual sign-up process.
Making Tax Digital for VAT has two major requirements for VAT-registered businesses:
For now, you only need to keep records required to complete your VAT return on your record-keeping software or bridging software (requirement #2 discusses what bridging software is).
The records you must keep digitally include:
You must add all items listed here to your digital records. However, you do not have to scan paper records such as receipts and invoices.
The HMRC requires you to keep your records for 6 years from the end of the accounting period.
MTD-compatible software allows you to keep digital records and submit VAT returns. It should also be capable of:
The top players — such as Xero, QuickBooks, and Sage — have already added an MTD feature in their software. This page publishes all providers that have been through HMRC’s recognition process.
If you’re using non-compatible software — such as spreadsheets — you must use bridging software to link your business records to HMRC’s systems.
Bridging software is a tool or application that connects your business to HMRC so you can still report your taxes digitally, even without using accounting software. However, it can’t help you with your other MTD requirements like digital record keeping. While there’s still time before MTD becomes mandatory for VAT-registered businesses, see if you can invest in proper accounting software.
Here are the steps you need to follow, as outlined by HMRC.
You must have compatible software, or at least a bridging tool, before proceeding with the actual sign-up process.
To sign up, you need your:
Here’s the other information you must provide based on your business category:
Once you’re done preparing your compatible software and relevant documentation, you can now begin with the actual sign-up process. Here’s how it goes:
Within 24 hours, HMRC will let you know through a confirmation email if you can start submitting your VAT returns under MTD.
Reminder: Do not sign up too close to your due date if you already pay by Direct Debit to avoid paying twice. This means you must NOT sign up 7 days before your return is due or 5 days after your return is due.
Are you still unsure how to deal with the changes brought by MTD? Or do you need help with making tax digital and digitizing your entire accounting process?
D&V Philippines advocates the use of digital technology in accounting. We regularly train our accountants and share with them critical updates about the tax and regulations in the UK so they’re always on top of what they do.